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Last Updated: Wednesday, 23 February, 2005, 05:44 GMT
Is German might right for Siemens?
By Joe Lynam
BBC World Service business reporter, in Bavaria

Siemens employees protesting
Longer working hours at Siemens have met with staff protests

The German economy has been struggling in recent years.

Faced by high wages, high taxes and red tape, many businesses operating in Europe's largest economy are finding things tough, and the giant German engineering group Siemens is no exception.

The company has been around for 158 years. It makes electric and diesel locomotives power trains, while its communications technology can be found in millions of mobile phone handsets across the globe.

So Siemens has a fine pedigree and continues to make great products. It all smells like roses in the garden? Well, not exactly.

Made in Germany

For a German company, some might say it is too dependent on its home country.

The badge 'Made in Germany', which adorns some of the world's top manufactured goods as a symbol of quality and reliability, is something the Germans are proud of.

Siemens mobile phone production line
Siemens is gradually shifting manufacturing out of Germany

Siemens has benefited on a global scale from this, but the company is changing its focus.

Gone is its dependence on Germany as a base for its wide variety of manufactured goods. Siemens is globalising by moving many of its operations overseas where wages and costs are lower.

Last year, it issued an ultimatum to thousands of its staff in Germany to work longer hours for the same pay or face losing their jobs.

"The trade unions have changed their policies, there was a need for some pain on both sides," says Dr Eberhard Posner, Siemens' vice president of corporate communications. "Our former [chief executive], Heinrich von Pierer, said that he would fight for every job in Germany - with or without the unions."

One-off deal

Ben Uglow, of investment bank Morgan Stanley, believes the recent struggle with its staff may mark a key year for Siemens.

"Siemens has about 40% of its global workforce in Germany. That's 166,000 people out of just under 410,000 people. However, it only sells about 25% of its products into Germany.

I'm constantly amazed at how Siemens continues to grow
Michael Phair, investment banker

"Addressing its manufacturing base in Germany is really going to be the single most important challenge facing the new chief executive, Klaus Kleinfeld."

But Werner Neugebauer, of Germany and Europe's largest trade union, IG Metall, says that the deal to raise working hours last year was a unique agreement and will not change things in Germany.

"This was a specific issue in a mobile phone plant. Under these circumstances of blackmail, we agreed to a special arrangement, but 95% of Siemens staff still works a 35 hour week," he says.

"It's a special case, but not one which is a role model for the rest of the German economy."

Telecom troubles

The main reason behind Siemens new get-tough policy with its staff was that its mobile phone division was not ringing up the profits.

Two men clean a locomotive built in 1899 by Siemens and Halske.
Siemens' industrial heritage has its origins in the 19th Century

It is tough being competitive when the average German worker is paid up to 70 times as much as his or her counterpart in Asia.

So what should Siemens do with its most troublesome phone unit?

The options are clear, says Dr Posner.

"We have four options. Sell it, close it, partner it with someone else or invest in it."

Independent streak

If Siemens had listened to some key advisers in the late 1990's, the company might not be around today.

Amidst the dotcom boom, many on Wall Street told it to dump its less profitable areas and focus exclusively on technology and telecoms.

That advice all but wiped out Siemens' former UK rival, GEC, when it transformed itself to became Marconi.

But it is this independent streak that has won Siemens many admirers. Investment banker Michael Phair was one of the great deal-makers of the 1990's.

"I'm constantly amazed at how Siemens continues to grow," Mr Phair says.

"I remember someone telling me in the 90's how Nortel would blow Siemens away, but look at Nortel now. It's lost about 90% of its value while Siemens has retained most of its."

The coming years are likely to show whether the changes wrought by Siemens will work for both company and country.

The new badge of honour might one day read 'Branded in Germany' instead of 'Made in Germany".

Dr Eberhard Posner, Siemens corporate communications
"The trade unions have changed their policies."

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